Dive Brief:
- During its first quarter with a new CEO at the helm, Ulta Beauty reported net sales fell roughly 2% to $3.5 billion, impacted by one fewer week in the year. In Q4 Ulta’s comps were up 1.5%, the company said in an earnings release.
- CEO Kecia Steelman, who took over from Dave Kimbell in a surprise move in January, said on a call with analysts Thursday that 2024 was the first year Ulta lost share in the beauty market. Steelman rolled out a turnaround plan aimed at driving core business growth, scaling accretive businesses and realigning the company’s foundations.
- As part of those efforts, Ulta plans to launch a marketplace to expand its e-commerce offerings and will go “back to the basics” on stores, ensuring locations are stocked and staffed appropriately, as well as clean and easy to navigate.
Dive Insight:
Steelman is navigating a rare rough patch for Ulta, and is doing so with a number of leadership changes and a slew of planned improvements to the store and e-commerce experience.
Since Steelman’s arrival, the retailer has named a chief marketer and elevated Amiee Bayer-Thomas to chief retail officer, where she will oversee store design and real estate. The company also added “transformation” to Mike Maresca’s role as chief of technology — he was previously chief technology and information officer — and put Chief Merchandising Officer Monica Arnuado in charge of digital.
As the retailer works to improve its experience, Ulta plans to focus on product assortment by accelerating its efforts to bring new brands into stores. It will also launch a marketplace to expand product offerings for e-commerce shoppers.
Steelman noted that “thousands” of brands want to work with Ulta, and the marketplace is a way to enable Ulta to try them out in a low-risk way. Customers will be able to earn loyalty points on the marketplace, set to launch in the back half of this year, and make marketplace returns at Ulta’s stores.
It’s also a way to enhance Ulta’s presence in the wellness space. The beauty retailer expects the marketplace to host a mix of new and established brands across both beauty and wellness.
Wellness is also in focus as the retailer works to improve its store experience. Ulta is launching 20 new brands in the near future in that category, which currently occupies just eight feet of space in stores. It wants to expand the amount of floor space wellness receives in certain stores and lean into categories like nutrition, sleep and mindfulness. Also on the table is replacing products in less productive categories with wellness.
“It’s clear to me that how we’ve operated must change,” Steelman said of the retailer’s stores, noting specifically a need to improve presentation and inventory levels across its fleet.
Pressure from Sephora’s rapid expansion in Kohl’s shop-in-shops is starting to wane, though.
CFO Paula Oyibo said that stores impacted by the rise in competition are starting to see those negative effects diminish. Indeed, Evercore ISI analysts said in emailed comments that the turnaround seems to be taking shape, in part thanks to declining pressure from competitive store openings.
“Ulta reiterated our view that pressure from rapid competitor store growth in recent years is starting to reverse,” the analysts wrote, noting that Ulta expects the overall beauty category to continue growing. “And the company pointed to some splashy newness, like an exclusive launch of Beyonce’s haircare line in a few weeks (a product that leans back into Ulta’s advantages like in-store salons).”
For Ulta’s part, the retailer is measuring its turnaround success via not only sales growth, but also metrics such as in-store conversion, member growth and retention. The macro environment is not as concerning for the retailer, analysts said, because it has less exposure to tariffs than others and operates in a category that is usually resilient in recessions.
“Ulta expects the promotional environment to remain rational this year, shrink to improve, and it shouldn’t see an outsized impact from tariffs relative to other retailers. These factors can help support profitability while the company makes critical investments,” UBS analysts said in emailed comments. “In addition, other catalysts on the horizon such as the impact of new product launches could drive accelerating comp trends ahead.”